There's one city where everyone lives, and a few things around it. So you'll run into most people there and its surroundings. It's right in front of the spawn point too.
http://i54.tinypic.com/2h3zvj9.jpg
There are no other official settlements elsewhere. As for illegal ones, I don't know. Maybe a few small ones carved into the mountains here and there, but I don't think there's a hidden village somewhere.
Creating a settlement outside the city is illegal and if you're caught then people are free to destroy and loot it. So buy a place within the city, or hide your settlement really well.
The land within the walled city have been divided into plots, and you can buy a plot with gold and/or diamonds and build your house within it. Because we don't want a city full of skyscraqers each plot size has it's own vertical limit too.
I don't know how many residential plots there still are. We have a few commercial ones that are more expensive which generate a small income each day though. Maybe some of the commercial plots could be converted to residential plots if we're running out of room. A castle has been built just outside the city which I think is going to have cheap house plots next to it.